In the third quarter of 2011, 117 million Smartphones were shipped globally and it is expected that 29 billion mobile apps will be downloaded by the end of this year. These extraordinary numbers not only highlight the considerable growth of Smartphones, they mask the fact that revenue and customer engagement are more important measures of performance than download volumes. This presents a key challenge to brands developing mobile app strategies: Caroline Cook from the MSS Australia practice looks at how apps deliver ROI when they are free to download?

In a previous blog, we looked at the four questions that would inform your mobile app strategy. Below i look at five business models and provide a leading practice example for each:

1. Apps to augment existing services

Mobile applications can be used to enhance existing offers; driving loyalty and improving customer experience.

Virgin Active Australia: One of Virgin’s key differentiators in the Australian market is the number and range of group fitness classes available to members. In order to capitalise on this, Virgin has released an iPhone app that enables members to book classes across all of its Australian fitness clubs at the touch of a button. By making it easy to book into classes, users are more likely to visit the club and therefore less likely to cancel their membership due to lack of use. As Virgin does not lock customers into contracts, generating loyalty and reducing churn in this way is a critical part of their business model.

2. Apps to simplify purchasing

Enabling customers to make purchases through apps is especially effective when coupled with the GPS technology in modern day Smartphones. Well designed ‘store-front’ applications can also simplify purchasing decisions (not just the purchasing process), and in doing so become key loyalty drivers.

Silver Service Cabs: Silver Service allows users in Sydney or Newcastle (Australia) to book a taxi in just a few clicks via iPhone – all the user needs to do is enter their street number, the time of pick-up and confirm the booking. As making a booking via the app is far quicker than booking over the phone (no need to find somewhere quiet to make the call, or wait in a queue) it is also likely to inspire loyalty through convenience.

3. Apps as ‘paid-for’ content distribution channels

Apps can be used as a distribution channel for paid-for electronic content such as magazines and newspapers – reducing the production and delivery costs associated with physical copies and delivering customer convenience through ‘on-demand in-one-place’ functionality.

Newsstand: Apple’s own Newsstand application (part of iOS5) has been a tremendous success: allowing the user to browse and download copies of popular magazines and newspapers on both a subscription and ‘per-issue’ basis. Like the Kindle store, Newsstand provides access to multiple publications in a single location, and payment is processed through the user’s iTunes account for even greater convenience. The combination of one-click purchasing, relatively low price per-issue and account-based payment is also the ‘perfect storm’ for an impulse buy.

4. Apps as ‘Freemium’ applications

Freemium applications are provided free of charge, yet require the user to pay for advanced features or functionality (and are distinct from free apps which require payment to remove ads). Cloud based solutions, where processing and storage happen online and the user interface is delivered through an app, are particularly well suited to this model.

Roambi Visualiser: Roambi provides business analytics and dashboard functionality over Apple devices including the iPad and iPhone, allowing users to generate a variety of charts, graphs and visual representations of their critical data on the fly. While the Visualiser is free, it is not possible to publish data to it without an account, requiring a subscription. Although a single-user account is free, Roambi generates revenue through the sale of corporate and SME subscriptions.

5. Apps as the industry norm

In some industries, mobile applications appear to be a standard value proposition of most, if not all, organisations. Where this is the case mobile applications cease to be a differentiator in themselves; instead it is the usability, comprehensiveness and overall quality of the applications that stand-out.

British Airways: The British Airways application allows users to book flights, track flights, check-in, download boarding passes, search timetables and view their frequent flyer account via mobile. It also works with many of BA’s OneWorld partner airline flights and includes its own dashboard which provides airport terminal maps, travel news and a direct phone link to the airline from an iPhone. Bundling so much information into one easy-to-use application, while allowing non-frequent flyers to use the application and its features, ensures that first-time customers will also benefit.

While these five models offer alternatives to the “price x downloads = ROI”, they are also heavily reliant on the quality of the app itself and the experience your customer desires. Unlike paid-for apps, which generate revenue as soon as they’re downloaded, free apps must provide an incentive for re-use and generate returns through that re-use.

What mobile app strategy do you employ? Have you used another model to generate ROI from your mobile apps?